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Steaming ahead

Sanjiv Mehta’s first love may be tea, but Unilever’s MENA chairman says the consumer giant’s other brands are also selling like hot cakes

By Daniel Shane

Sun 23 Sep 2012 09:12 AM

Stepping into his spacious office at Unilever’s MENA headquarters in Jebel Ali, chairman Sanjiv Mehta’s appreciation for a good cuppa is obvious. Finishing his first, he immediately asks his assistant for another, stirring it meticulously before making light of that one too.

This passion for a drink widely considered the most consumed on the planet has transcended his professional life. One of Mehta’s career highlights, he says, is during his former role as head of the consumer products giant’s operation in the Philippines, where Mehta claims he helped convert a nation of coffee drinkers to Unilever’s Lipton tea brand. Mehta, who took on his current role in 2008, says he is now determined to do the same in the Middle East.

The Anglo-Dutch company’s refreshments division, of which tea and its related products are a major constituent, turned over €8.8bn ($11.5bn) in 2011, just under a fifth of the group’s total of €46.5bn. On a regional basis, tea accounts for about a quarter of Unilever’s $1.5bn MENA sales.

“Tea is a highly penetrated category — nearly everybody drinks it,” Mehta explains, adding that Unilever’s Lipton currently has about 70 percent of the tea market in the region, while products under the Lipton umbrella make up “one fourth” of Unilever’s portfolio in MENA.

Given the high penetration Unilever holds in the tea market, Mehta says one of the firm’s focus is on increasing profitability on existing products in this segment.

“But if you were to peel the onion, it’s only 40 percent of our tea that is going in tea bags and 60 percent goes in packet [loose leaf] tea,” he continues. “We get a much higher value out of tea bags — it’s nearly a factor of three for every cup consumed.”

Mehta says that Unilever conducted extensive market research across the region is to find why most consumers preferred packet tea over tea bags, and what the company could do to address this.

“People aren’t soulless users — in most of the households you’ll find tea bags and packet tea,” he explains. “For us it was very important to understand when you use a tea bag and when you use a tea packet, and we got some very interesting insights.”

Unilever researchers found that in Saudi Arabia, for instance, female consumers would drink from tea bags predominantly in the day time, but would then switch to packet tea from 5pm to 10pm in the evening.

“The reason is, when her husband comes home, or when visitors come to her place, she doesn’t want to seem like she’s not putting in an effort to prepare tea,” Mehta says. “She thinks that if she just comes and dips the tea [bag], her husband will feel like she’s not giving enough importance [to making tea].”

On the back of this discovery, Mehta says Unilever’s marketing campaigns in the Gulf started emphasising the use of tea pots when making the drink with tea bags. “We basically told women they could go through this whole ritual of making tea using a tea bag,” he says.

Unilever’s bid to woo Saudi housewives extends beyond marketing. The company has also sought to take advantage of other consumer fads to launch products in the region that were not previously popular.

“Green tea was a very small category, but with more and more people getting health conscious... we had a very focused programme on exploring the green tea market,” Mehta explains, adding that the beverage’s “do-good health properties” have made it a hit with female consumers in the region.

Mehta says that Unilever is also eager to target younger consumers with the Lipton brand.

“55 percent of the population [in the region] is less than 35 years old,” he says. “So we also wanted to work on the youth, but for the youth we had to make tea more contemporary.” To this end the company introduced its ‘Chai Latte’ product — a three-in-one-mix of tea, powdered milk and sugar — to the MENA market. “It has been made to suit the Arab palate, so it’s very sweet — not everyone would like it, but the Arab youth love it.”

Mehta says that all of these initiatives have helped in propelling growth in sales across Unilever’s tea portfolio in the region. “Four or five years ago, tea was growing in low single digits, but through all these initiatives that we’ve taken, it’s now growing double digits.”

Simple market fundamentals dictate that this growth would count for nothing if Unilever did not have the infrastructure to meet this demand, so the firm has also poured investment into extending its manufacturing capabilities.

When Unilever launched its Jebel Ali factory in 1999, the facility had an output of approximately 5,000 tonnes of tea per year, which has been ramped up to its current 25,000 or so tonnes. By the end of this year, Mehta says output will reach 29,000 tonnes per annum and by 2020, it will be close to 40,000 tonnes, overtaking its facility in the UK to become Unilever’s largest tea manufacturing plant in the world.

“It’s a very highly automated, very efficient factory,” he explains.

The tea manufactured at the plant is consumed in Unilever’s core markets in MENA, which include the UAE and Saudi Arabia, as well as more “nascent” regional territories that Unilever has sharpened its focus on, such as Libya, Sudan, Algeria and Iraq.

“This is a big tea market, and if you look at it we’re equidistant from the tea-growing countries [such as] India, Sri Lanka and Kenya,” he explains. “The other reason why we wanted this factory here was being close to the market.”

Mehta says that the facility is also increasingly being used as a global export hub for the company, with produce being shipped from Jebel Ali to 40 countries around the world, including far-flung territories like the US and Australia. “If you have very efficient logistics like you have in Jebel Ali port, it makes sense to export it to different markets.”

Aside from Lipton tea, Unilever sells a galaxy of household brands across the consumer market, from Axe deodorant, to Dove soap, to Signal and Close Up toothpastes. Mehta claims that “every one of our categories has room for huge growth”, but with a huge portion of Unilever’s product portfolio being viewed as ‘essential’ everyday hygiene items that consumers may already be using in one form or another, how is it that the firm is able to realise this growth?

“A classical example I use, is that if everyone were to brush their teeth twice a day — the size of the toothpaste market would be seven times bigger than what it is today,” believes Mehta. “It’s not about affordability, it’s about behaviour, it’s about habits and it’s about attitudes.”

He adds that Unilever’s marketing drive extends to hosting workshops at schools to educate children on dental hygiene. Through these programmes Mehta claims that the company will reach an additional 3 million consumers this year alone.

“Another striking example is deodorants. If the deodorants were to be consumed at the same level [in MENA] as Latin America, the market for deodorants here would be eight times bigger than what it is,” Mehta adds.

Looking at Unilever on a global basis, sales from emerging and developing markets such as MENA and Latin America account for 55 percent of the group’s annual revenues, Mehta says, with 75 percent to 80 percent of Unilever’s growth also coming from these regions.

“We have a business here where nearly 75 percent of our turnover comes from number one category positions, as in we’re the market leaders. We’ve been growing solidly, despite the financial crisis,” he says.

Mehta says that he does not expect Unilever’s growth in MENA to slow down any time soon as “none of our markets are mature”. What is more, he believes that there is “immense potential” the company has yet to tap in countries like Iraq and the Maghreb states, such as Libya and Algeria. “In another few years time, if there’s political stability these markets will become really big.”

Another factor that he believes will propel growth for Unilever is the population boom being witnessed in the Middle East, both in terms of newborns and arriving expatriates. Unilever’s strength, Mehta believes, is its portfolio. With the firm’s consumables stretching across personal hygiene, food, to cleaning products, to cosmetics, and of course tea, Unilever has something for everyone.

“If you look at this region, we have nearly 350 million people [and the population] is growing at about two percent to 2.5 percent per annum. So that’s 7 million people coming into our fold every year,” Mehta says. “It’s an economy that, depending on the oil price, can have a GDP up to $1.72 trillion. So, by any length, this is a very attractive market for us.”